Transfer pricing is the pricing of goods or services that are exchanged between related companies. The companies involved in such transactions are usually related to each other in some way. For example, it could be a parent company and its subsidiary or two subsidiaries of the same company.
The transfer pricing method is generally used by multinational companies (MNCs) and their subsidiaries or sister companies to allocate income and expenses. However, transfer pricing must comply with international regulations to avoid issues such as tax evasion.